ASEAN: Forging New Alliances with Gulf Capital and Chinese Scale

A Pivotal Moment for ASEAN

The Association of Southeast Asian Nations (ASEAN) marked a significant milestone in May 2025 by hosting its summit in Kuala Lumpur with unprecedented participation from China and the Gulf Cooperation Council (GCC). This event represented the first time these two economic powerhouses joined the high-level meeting of the ten ASEAN member countries: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. The summit’s primary objective was to bolster cooperation across critical sectors such as trade, investment, infrastructure development, green energy, and the digital economy. Furthermore, it aimed to elevate ASEAN’s global standing and foster collaborative efforts in crucial areas like food and energy security, sustainable development, and pandemic preparedness.

The combined economic might of these three groupings—ASEAN, China, and the GCC—presents a formidable global force. The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Together, these nations boast a staggering combined GDP of approximately $25 trillion and support a total population exceeding 2.1 billion people. As Malaysia's Prime Minister Anwar Ibrahim succinctly put it at a subsequent meeting in Singapore, the overarching goal of this expanded collaboration is to "connect ASEAN’s energy and talent with the Gulf ‘s capital and China’s scale." This statement encapsulates the strategic vision behind these emerging partnerships.

External Pressures as a Catalyst for Deeper Integration

This pivotal summit unfolded against a backdrop of global economic turbulence, particularly the "Liberation Day" tariff onslaught initiated by US President Donald Trump in early April, which primarily targeted China and ASEAN countries. While these tariffs initially caused significant disruptions, they later saw substantial reductions through negotiation, with rates lowered for most ASEAN nations. Notably, Myanmar and Laos faced the highest punitive rates, while Singapore, with its trade deficit with the US, incurred the lowest. Interestingly, these external pressures inadvertently spurred a dynamic already in motion: the strengthening of intra-regional trade within the Asia-Pacific, an increase in the use of regional currencies for settlement, and the alignment of cross-border payment systems.

Poppy Winanti, a professor of international relations at Universitas Gadjah Mada, Indonesia, observed that "although the tariffs initially caused disruptions and exposed vulnerabilities, they also unintentionally accelerated ASEAN’s move toward closer intraregional connections and economic partnerships." She added that these strategies "point to a more resilient and interconnected ASEAN that relies less on a single trade partner and plays a bigger role in future global trade trends." This perspective highlights how geopolitical challenges can sometimes foster greater regional cohesion and economic resilience.

Unlocking Gulf Capital and Chinese Scale

A significant draw for ASEAN and China is the immense capital held by the GCC countries' Sovereign Wealth Funds (SWFs). With a combined asset pool of $4 trillion across three SWFs in Abu Dhabi and one each in Kuwait, Saudi Arabia, and Qatar, these funds are projected to reach almost $18 trillion by 2030. Last year alone, these six GCC SWFs deployed 54% of all funds globally by SWFs, signaling a move towards a more aggressive investment approach, including outbound mergers and acquisitions. John Ashbourne, a senior emerging markets economist at Fitch Solutions, noted that while the summit yielded "a lot of declarations of intent, but not a lot of real, legally binding commitments," GCC investment in ASEAN has been steadily rising, with significant potential in infrastructure-investment, digital, and green-economy initiatives, as well as Islamic finance.

On the other hand, China's engagement with ASEAN continues to deepen, driven by its vast economic scale and the ambitious Belt and Road Initiative (BRI). Chinese outward direct investment in ASEAN experienced robust growth, with a 13.5% compounded annual growth rate between 2013 and 2018, and an 8% increase from 2018 to 2022. By 2022, cumulative two-way investment between China and ASEAN surpassed $380 billion. Trade figures are equally impressive, reaching $468.8 billion in 2023, a 10.5% increase from the previous year, solidifying ASEAN’s position as China’s largest trading partner in 2022. A tangible outcome of the summit was the agreement for China Harbour Engineering Company (CHEC) to develop a port and industrial hub on Malaysia’s northeast coast as part of the BRI, further integrating regional infrastructure.

Evolving Financial Landscapes and Future Prospects

The collaboration extends prominently into the debt markets, where syndicated loans in ASEAN increasingly feature Chinese and GCC banks. Primary bond market roadshows from ASEAN commonly include major financial centers in China and the GCC. A proposal from Chinese regulators in July to expand the "southbound leg" of China’s Bond Connect channel—allowing mainland institutions access to Hong Kong’s bond market—could potentially inject up to $139 billion into ASEAN’s local-currency bond markets. This indicates a growing convergence in financial strategies.

Koh Chin Chin, Head of Group Treasury, Research, and Customer Advocacy at United Overseas Bank (UOB) in Singapore, expressed optimism for ASEAN's long-term potential, citing its strong fundamentals, including a young population, rising middle class, and robust trade-connected infrastructure. UOB has observed the increasing importance of the Panda bond market as China liberalizes the renminbi and its financial markets, alongside a growing appetite from GCC investors for conventional bond issuance. While Carmelo Ferlito, CEO of the Center for Market Education, acknowledged the need for diversification, he also pointed out the significant disparity in influence, with China being a dominant player compared to the GCC’s more limited role. However, the overarching sentiment remains positive. As Fitch Solutions’ Ashbourne concludes, “ASEAN is often seen as a neutral broker; it can bring together countries or groups that might otherwise not have close relations. So, in some ways, it is the perfect partner to bring leaders from the GCC and China together in the same room. This could, absolutely, be the beginning of something big.” This sentiment underscores the potential for this trilateral cooperation to redefine regional and global economic dynamics.